J.L. Davis Weekly Market Update 3/28/2011

Quote of the Week:

“You better cut the pizza in four pieces because I'm not hungry enough to eat six.” Yogi Berra

While Mr. Berra's words in the quote above might be a bit unclear, his intent is not. Without a doubt, he planned to eat the whole pizza.

In terms of the domestic equities markets at present, the “whole pizza” is looking quite good as well. Small capitalization stocks, mid-cap stocks, and large cap stocks have been trending up, in spite of recent world headlines. As well, certain subsets including companies involved in commodities and technology have been especially strong recent performers.

One never knows what the future holds in terms of performance, but having a diversified, well conceived portfolio that is designed to meet long term objectives has shown to be highly effective. No matter how many "slices", eating the "whole pizza" in investment terms is a good idea. We don't recommend it in your diet, however!**

The Markets

Investors brushed aside disappointing housing data and debt concerns in Europe to push domestic equities higher for the week. The Dow and S&P 500 regained 12,000 and 1,300 respectively and both small caps and the tech-heavy Nasdaq saw new enthusiasm. That renewed interest in stocks helped send the price of 10-year Treasuries back down as yields rose.

Last Week's Headlines

• New-home sales plummeted almost 17% in February, hitting the lowest point since record-keeping began in 1963, the Commerce Department said. Sales also were down 28% from the previous February. Hardest hit were sales in the Northeast, now down 50% from a year ago, and the Midwest, down almost 41% in the same time.


• Sales of existing homes also fell sharply in February, according to the National Association of Realtors®. The 9.6% decline followed three straight months of increases. Though they were 26.4% higher than last July's low, sales were still down 2.8% from February 2010. All-cash purchases hit a record 33% of all sales, and distressed homes sold at a discount represented 39% of total sales.


• Durable goods orders fell in February, according to the Commerce Department. The 0.9% drop was the fourth decline in five months. New orders for capital goods (other than defense-related equipment and aircraft), which indicate the level of business spending, were down 1.3%.


• Despite another downgrade of the country's sovereign debt, the Portuguese parliament rejected a proposed combination of tax increases and budget cuts, potentially increasing the need for a bailout from fellow European Union members. The country's prime minister, who proposed the austerity package, resigned and a new government will need to be formed. Also, Moody's downgraded the credit rating of 30 Spanish banks, citing as one reason pressures from a recent deterioration in that country's sovereign debt, which was downgraded earlier this month.


• The final figure for Q4 gross domestic product (GDP) showed the economy grew at an annualized rate of 3.1%, higher than previously thought and higher than Q3's 2.6%. For all of 2010, the economy grew almost 3%, a vast improvement from 2009's decline of 2.6%. After-tax corporate profits were up 20.4% in 2010 compared to 2009's 5.1% increase.

Eye on the Week Ahead

Investors will watch to see if the market continues to recover from its recent bruising and extends its upward march. A data-intensive Friday will see new employment, construction, and manufacturing indicators. Key dates and data releases: personal income/spending (3/28); home prices (3/29); unemployment/payrolls, construction spending, U.S. manufacturing (4/1).

Data source: Includes data provided by Brounes & Associates. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. Equities data reflect price change, not total return. The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.

Prepared by Lee Davis** and Forefield Inc. Copyright 2011